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The true cost of things

Gordon Laird

Published October 30, 2009Updated May 1, 2018

Early in 2001, I ventured up into Canada's High Arctic on a magazine assignment to write about climate change. Guided by a local hunter from Resolute Bay (Qausuittuq), we travelled out onto the pack ice. Here at Canada's second most northerly civilian settlement, local elders were reporting that the ice was breaking up weeks and even months earlier and behaving erratically. The plane ride into Resolute gave me a glimpse of a large crack in the ocean ice, even though it was still February, with daytime lows of minus 40° Celsius. Outside, it was too cold to talk - the wind chill was minus 70° or more. All we could do was gaze off into the distance, across the frozen ocean and islands of the Arctic towards a horizon lit by winter twilight. Except for the wind it was silent, but beneath us everything was in motion.

We were travelling the route of the legendary Northwest Passage, the world's last great unconquered ocean passage and the legendary direct route coveted by explorers since the reign of Queen Elizabeth I. To the local Inuit this largely icebound channel is a thoroughfare for polar bears, seal, walrus, hunters, wayward explorers, and pack ice. Later, skidding across the ice on the back of a snowmobile, I recalled the troubling stories of local hunters, who told of everything from freak floods and unusual bouts of open water and surges to disappearing wildlife - phenomena that run counter to generations of Inuit oral history and, more often than not, are reflected in the predictions of those who study climate change.

Not only are Inuit hunters losing their bearings while travelling on strange ice floes and resorting to GPS units for navigation, southerners have been travelling north to take their bearings and trace their own routes. In August 2007 the Northwest Passage was open to marine travel for the first time since records began, making it the world's most northerly navigational route. As ice coverage doggedly disappears across the summertime waters of the Arctic, shipping companies and trading nations are jockeying to run some of the world's biggest container ships and tankers on regular routes through the Northwest Passage, well before 2040, the estimated date when all summer sea ice in the Arctic will have disappeared. This major new shipping route is worth billions: what once took twenty-nine days to sail between Rotterdam and Yokohama would take just fifteen across the Northwest Passage and the Arctic Ocean. For the Inuit, environmentalists, and many locals, it's a scenario that presents hazards nearly as concerning as the regional effects of climate change, including oil spills, lost shipping containers, oil drilling, and economic development - basically relocating southern industrial development to the edge of some of our most northerly habitable communities.

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"Within a generation the Arctic Ocean will be opened up to general cargo shipping," said Inuit leader Sheila Watt-Cloutier in 2004. "This means wholesale social, economic, and cultural change in the circumpolar world, and will bring to the fore longstanding questions of national sovereignty and disputed boundaries. I don't think any of us are ready for these very big issues."

While eroding sea ice is of great concern to many hunters, it is the heavy metals and PAHs (polycyclic aromatic hydrocarbons) from the south that worry so many others, the long-distance byproducts of our cheap-energy addiction to coal-fired power, and the added load from cement plants and garbage incineration. Mercury accumulates in the Arctic: the persistent cold for much of the year literally freezes it out of the water vapour in the air so that it ends up on the ground. Caribou eat the lichens; polar bears and hunters - and their children - eat the caribou. "We are eager to manufacture metal, to forge steel and burn coal. Like in the south, all around the Great Lakes," says one Inuk. "For the average farmer in the south, there is quality control. But for caribou meat, all we can hope for is that it is the same as a hundred years ago."

Due to pervasive contaminants and the high cost of gas and equipment, more and more hunters have to shop for food. Iqaluit's Northmart, one of a handful of high-latitude supermarkets in the world, demonstrates a different, and more telling, economy: tomatoes and green peppers at $4 a pound, milk for $3 to $4 a litre. It may be howling cold outside, with blizzards blowing in off Frobisher Bay, but inside you can troll the aisles with your parka off, filling your cart with fresh (albeit expensive) dairy, bread, and produce. In addition to groceries, Northmart offers housewares, clothing, and equipment in several aisles, much like a Wal-Mart Supercentre, but smaller, more expensive, and with fewer white people.

This is one view of the future: a world without bargains. A litre of apple juice costs $5.89; hot dog buns are $4.99 - and that's after $18 million in annual transport subsidies from the government. Junk food and sweetened juices aren't subsidized, so a gallon jug of cranberry cocktail retails for $41.69. It's hard to hide the actual cost of things up here. Transport costs for green peppers and tomatoes are 20 percent of the retail price, whereas transport costs as a percentage of sales in the south were less than 2 percent in 2004. Gasoline here was $1.50 a litre by mid-2008 ($5.67 a gallon), even after $230 million in fuel subsidies; the real cost is likely closer to $11.00 a gallon.

While wrestling with food inflation, climate change, homelessness, unemployment, and other chronic issues, Nunavut's government had to raise an extra $100 million to cover energy price increases in 2008, or else let retail gasoline prices jump 50 percent. If consumer gasoline prices doubled, homelessness would likely double as well, given the large population of at-risk residents of Iqaluit who depend on gasoline and fuel oils for power. The local homeless shelter is nearly full already and the winters are deadly. A 2006 government report documented thirteen-year-old girls trading sex for shelter and single mothers with their babies sleeping inside banking-machine lobbies. Several local homeless men wander the Northmart on any given day as part of their ongoing effort to stay warm. "I've got to find that $100 million," said Nunavut energy minister Ed Picco. "Do I take it out of education? Do I take it out of health?"

Iqaluit is on the cutting edge of many of our most important twenty-first-century challenges. This is a land that is beyond cheap, a place that Wal-Mart and all other major retailers have forsaken - a place where people are too often forced to pay the true price of things.

The government has certainly done its part to reduce carbon intensity, to future-proof, and generally attempts to cope with the multitude of new pressures it faces. But when it comes down to it - when cheap is eliminated - people are often forced to choose between maintaining their material systems and infrastructure and sustaining "non-economic" assets such as health, education, and the environment. This choice, in fact, happens all the time, but we don't notice it because the consequences are deferred or delayed, or we're simply not paying attention.

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What buys Nunavut time is the curious and much larger phenomenon of our societal capacity to absorb and tolerate high economic costs, particularly energy costs, without collapse. This is one of our hidden strengths: to demand bargains but demonstrate surprising adaptability when costs accumulate. Our markets, retailers, suppliers, and nearly everyone else are collectively disciplined and conditioned to deliver cheapness and suffer under price dictatorship (excepting the military-industrial complex, real dictators, and luxury goods manufacturers). Crude oil prices increased 60.1 percent in 2007 and 2008, but the newsworthy collapse was the failure of Wall Street's unregulated credit derivatives based on a housing bubble, not the energy and commodity inflation of the same period.

This may suggest hidden strength and resilience of some kind. Or it may be a lesson about how systems change in non-linear fashion. For example, if you travel straight out of Iqaluit across Frobisher Bay, south and east, you'll be in open water in the upper reaches of the Labrador Sea, an extremely deep stretch of ocean bordered by Greenland and Labrador. This is the site of the North Atlantic Deep Water, one of the great engines of oceanic currents in the northern hemisphere and responsible for anchoring planetary energy balances. Here water moves in deep channels, mixing with older waters as it moves towards the southern hemisphere. Some deep waters travel for 1,600 years before passing by Antarctica, turning north into the South Pacific, and finally upwelling in the North Pacific.

As Wallace S. Broecker first noted in 1987, and as other climatologists have concurred since, the great ocean conveyor belt is characterized by massive thermal inertia. Climate change happens as an echo: today's emissions don't immediately affect the earth's thermal cycles because of the planet's oceanic mass. And not only is change gradual - and very unlikely to reflect rapid loads and stresses - the true delayed response may be a climatic flip that would occur once certain thresholds of water salinity and temperature are reached. At that point, as has been debated, discussed, and fearfully speculated on at length, our climate may destabilize and begin to perform in erratic ways, such as cooling in northern Europe or accelerating sea level increases.

For people who are also concerned about the price of big-screen televisions, the take- away lesson is simple: as our material world and our economy under late globalization begin to perform more like a climatic system, we are incurring stresses and strains that will likely have critical, delayed consequences. Much like the problem of toxic debt with dangerously flawed financial products, the costs and dangers in the modern supply chain are not evident, nor are they passed along to consumers as the true price of things. This goes a long way to explaining how a crowded global economy managed to squeeze out persistent growth and productivity despite price increases, volatility, and other challenges. That Wal-Mart can still comfortably fill a supercentre at $150 oil-price spikes is an accomplishment to be sure. But three more years of $150 oil without reprieve would seriously constrain Wal-Mart's survival tools: its ability to hedge and purchase quantities of services, materials, and energy when prices are low; the continued inability of suppliers in the same situation to absorb costs; and the decreasing likelihood that customers themselves would continue to consume at past rates. On the whole, the real story of much of the 2000s is how modest overall price increases actually were, given the impressive price increases for food, oil, and commodities. "One of the surprises," said Patrick Jackman, a senior economist in the consumer price division of the U.S. Bureau of Labor Statistics, "is that the oil price surges of the 1970s passed through fairly quickly into consumer prices, and this time that is not happening."

The truth is that the world's biggest corporations have been internalizing costs in an effort to stay competitive - essentially creating consumer welfare. During the oil-price spike of 2008, Europe's leading discount airline, Ryanair, reported that 50 percent of its costs were fuel-related, and even Exxon claimed that it had sacrificed its refining margins in an effort to reduce retail gas increases to consumers.

Multinationals can't carry us forever, though. In the future, will there be any savings to pass along to consumers after we finish transporting bargains across the planet? Removing subsidies to consumers and business from the global economy would be a lot like removing automobiles from our cities: it is possible, and even desirable on many levels, but represents the kind of radical change that people rarely undertake voluntarily. And it is very difficult to convince developing nations to remove fuel and food subsidies. The 48 percent increase in global food prices between 2006 and 2008 had its most destructive impact on the developing world: approximately 100 million people across Africa, Asia, and the Americas are at critical risk as increases erode previous gains made against poverty.

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But someone has to make sacrifices and take new kinds of risk. The cracks in the February ice in the Northwest Passage I witnessed in 2001 weren't an isolated event. In March 2008 the British Meteorological Office found that the coldest winter days in Canada and Russia had become four degrees milder since the 1950s. In global terms a four- degree overall increase - not just in far northern latitudes - would be a profound event, potentially causing water shortages, flooding in coastal cities, and the profligate spread of tropical disease.

High prices might well save us. In fact, as the Canadian Energy Research Institute (CERI) found in May 2009, if crude oil is too cheap - less than $90 a barrel - then energy producers will not make investments in efficiency and carbon capture. Low-priced fossil fuels pose fierce competition to more sustainable energy alternatives, not only in terms of direct competition for investment capital and government subsidy but also for regulatory and policy dominance. An economy that has no price or tax on carbon rewards massive investment in unconventional crude and discriminates against sustainable alternatives. "Every serious study of climate change done in Canada and abroad makes the same point," reported the Globe and Mail's Jeffrey Simpson in 2009. "Unless governments put a price on carbon, there cannot be a serious attempt to reduce emissions." Moreover, if the carbon price per tonne is too low within any emissions trading system, such as it is in Alberta at $15 a tonne, the low cost is inadequate to stimulate alternatives; it is cheaper for companies to simply pay to pollute.

We cannot afford a cheap energy status quo. The cost of mitigating the worst effects of climate change could be roughly 2 percent of the world GDP, according to Britain's influential 2006 Stern Review, while the cost of inaction would be at least 5 percent, and possibly 20 percent. To achieve the radical reductions in greenhouse gas emissions that would assuredly stabilize the planet, our status quo will be challenged. Yet in 2009, Lord Stern, former chief economist of the World Bank, estimated that a green plan to save the future - one that addressed both the financial and environmental crises - might cost as little as just 0.8 percent of world GDP, or $400 billion. That's less than a single year's revenue for all the dollar stores, chain discounters, and global bargaineers combined.

Like the unseen effects of ocean currents and pack ice on global climate, there is a hidden world inside our economies and global systems of interdependence that is surprisingly forgiving and open. Many obstacles to change are either cognitive or cultural, and the problems are not always as concrete as one might think. Sometimes things happen just because of deep inertia, not because change isn't possible. We are habituated to patterns: grocery shopping, foraging for deals, aspiring to better gadgets. There is nothing to suggest that we can't change this in favour of competitive conservation or extreme local commerce. Like energy efficiency, it's hard to imagine why we haven't done it sooner.

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